Financial Literacy in the New Regulatory "Normal"

Financial Literacy in the New Regulatory "Normal"

Student financial literacy has been a growing concern, not only because of the connection to persistence and retention, but also in terms of success beyond college years that includes repayment of student loans and general fiscal responsibility in adulthood. We’ve likely all heard the stories of the $82 pizza, its price inflated by a check that bounced and resulting fees from the bank and pizza parlor. It shows the need for students to understand the consequences of spending money they don’t have.

Best practices in financial literacy education can be found on many college campuses. There are likely some very good ideas percolating on your own campus. Yet, despite the increased focus on financial literacy, some institutions are backing away from recommending student loan lenders because of the regulatory burden imposed on institutions that maintain preferred lender lists. Here’s a look at decision making related to educating students on personal finances, specifically lending.

Literacy Education in Practice

At Alvernia University (Pa.), Jason Deitz, associate director of student financial planning, developed a one-credit online class likely to be rolled out in the fall semester. Also, the required First Year seminar class now includes financial literacy information, with content from the Pennsylvania Higher Education Assistance Association. Plans are in the works to expand literacy education to upperclassmen.

It’s a group other institutions are targeting with personal finance information. St. Bonaventure University (N.Y.) embarked on an initiative for graduating seniors a few years ago that taps into the expertise and wit of a highly regarded finance faculty member. Professor Giles Boothaway has met only with seniors who have borrowed federal loans as part of the loan exit counseling process. Now officials have extended that invitation to all graduating seniors.

Students seemed to have little awareness about their loan indebtedness.

“Word has circulated about Professor Boothaway’s presentation, and students like and respect him, so we had a strong turnout this year,” reports Gail Marasco, assistant director of financial aid. Boothaway covers topics such as making and sticking to a budget, the need to establish a good credit record, and the importance of saving. He drives home the point about savings by giving students a by-the-numbers look at how they can save $1 million by retirement. He even shows students a section of his own FICO report.

Now students in SBU’s Higher Education Opportunity Program (HEOP) can take a summer leadership workshop with a former banker who warns them of the risks of getting in too deep with credit cards. SBU invites HEOP freshmen from five area colleges to the workshop.

Students do the bulk of personal finance teaching at Luther College (Iowa), where the financial aid office has hired two literacy peer mentors who work about six hours a week. (State grant funds initially supported their wages.) Carolyn Schwendeman, a financial aid counselor and the peer mentors’ supervisor, says that while students signed promissory notes and completed entrance interviews for student loans, surveys showed little awareness about their loan indebtedness.

Through a newsletter, a student newspaper column, a FAFSA “countdown to deadline” expo, and other activities, the peer mentors provide education and counsel about loans and other personal finance topics. One event featured mentors arriving in a public setting, one dressed in an outfit purchased at the local secondhand store, the other wearing more expensive duds from an upscale store. Students had to guess which outfit was purchased where. The mentors have also distributed fortune cookies with financial tips in place of the fortune and held contests for students to guess the total amount of loose change in a large jar--demonstrating how much one can squirrel away by saving spare change.

At Albion College (Mich.), financial literacy education is being integrated into its 2011-12 “Year of Wellness.” As Ann Whitmer, director of financial aid, explains, each month will have a theme, with one dedicated to financial literacy. Planners are targeting not only students, but also faculty and staff. CashCourse, a free non-commercial resource sponsored by The National Endowment for Financial Education, has been used by the college and will become a more prevalent part of initiatives next year.

When Ellen Richter-Norgel, director of student retention at St. Catherine University (Minn.), attended a conference session about financial literacy presented by University of North Texas staff, she was quite impressed with the work they had done. Armed with ideas and energy, she returned to her own campus where an interdisciplinary team of faculty and staff formed the University Financial Literacy Committee. Here, the seed was planted for St. Kate’s “Money Doesn’t Grow On Trees” money management program.

The work was funded through grants at first, but now St. Kate’s funds a position that involves organizing a speaker series and peer money mentors involved in both outreach and education. Testament to the student mentoring, says Richter-Norgel, is the waiting list for students to meet with the certified consumer credit counselor from Lutheran Social Services who comes to campus for one-on-one appointments to discuss budgeting, credit card debt, and loan repayment options.

Signs of overall program success include a dramatic reduction in the number of students referred to outside collection agencies due to overdue bills.

Navigating Requirements

Against this backdrop of financial literacy education efforts is the irony that institutions must meet new, more burdensome requirements when intending to provide information about alternative loans to help students finance their education.

The Higher Education Opportunity Act (HEOA) of 2008 added these requirements for colleges using a preferred lender list or preferred lender arrangement for alternative loans. A 2008 Dear Colleague Letter on the subject indicated that a preferred lender list can be an effective tool to help families looking for student loans to finance the costs of postsecondary education, when the list reflects the school’s unbiased research to identify lenders.

Yet the list of requirements is long for institutions that decide to enter into a preferred lender arrangement or provide a list of preferred lenders. Among the items on the list are: displaying the application/

'I can't imagine sending first-generation families off on their own to Google options for private loans.' -Christine Saadi, Alvernia University

solicitation disclosure from each lender on the institution’s website, having at least two unaffiliated private lenders, disclosing the lender selection criteria, advising students that they don’t have to borrow from a lender on the list, and providing information about Title IV aid. Institutions must also submit a publicly-available report annually to the education department on each lender on the list.

Nazareth College (N.Y.) opted to use a third-party lender list from Student Lending Analytics, an independent research and advisory firm with no affiliation with any outside lenders. This meets requirements because the neutral listing doesn’t endorse or recommend any lenders on the list, and there’s no fee paid to the third party based on loan volume generated.

Luther College maintained a preferred lender list prior to the HEOA regulations of 2008. When the new regulations were announced, administrators first chose to provide a comprehensive historical list of private lenders used by their students over recent years. This option does not require an institution to include the myriad disclosure and reporting requirements.

But aid director Janice Cordell says it was not serving students well. She and her staff knew there were lenders on the list that Luther wouldn’t recommend. But, excluding lenders would have constituted a preferred lender arrangement. Officials chose to get back into the preferred lender list business by using FASTChoice, a loan comparison tool from Great Lakes Higher Education Corporation, which allows students to compare loans side-by-side. Eight lenders with a total of 11 separate options are now listed on the Luther-specific portion of the FASTChoice site. Cordell said this works well.

Alvernia leaders decided on their own preferred lender list from the get-go. Director of Student Financial Planning Christine Saadi says not a day goes by that she or some member of her staff isn’t asked for advice about alternative loan options. She notes, “I can’t imagine sending first-generation families off on their own to Google options for private loans.”

Officials came up with categories of information required from potential lenders, including the obvious criteria of interest rate structure, repayment terms, and annual loan limits, as well as information about past due balance options, whether satisfactory academic progress is required, customer service info/bilingual options, and cosigner release options.

How We Got Here

So how did we get to the point of having more stringent regulations related to providing advice about alternative loan borrowing, at a time when financial literacy has become increasingly important?

Dial back to 2007 when inquiries into lender/school relationships became headline news. First in New York and then elsewhere, certain practices and arrangements were questioned. A few bad apples, in this situation on both the lending and school side, drew widespread attention that led to some sweeping regulatory changes. The vast majority of aid officers and lenders do their best daily to help students and families figure out viable financing options to pay college costs. But now it’s more time consuming and cumbersome to do so.

Mary Piccioli is an enrollment management consultant at Scannell & Kurz. She can be reached via www.scannellkurz.com.